Egan-Jones Urges XAI Floating Rate Trust Shareholders to Reject Adviser Change
In a recent analysis published by Egan-Jones, shareholders of the XAI Floating Rate & Alternative Income Trust (ticker: XFLT) have been advised to cast their votes against the proposal set for the special meeting on July 30, 2026. This recommendation comes in response to the proposed change from the current sub-adviser, Octagon Credit Investors, to Rockford Tower Asset Management, a subsidiary of King Street Capital Management. Egan-Jones's analysis emphasizes the inadequacy of evidence supporting the need for this transition, particularly the board’s use of the Morningstar LSTA US Leveraged Loan 100 Index as a benchmark for performance evaluation. The firm argues that this benchmark fails to align with the investment strategy of XFLT, which includes allocations to loans, CLO debt, CLO equity, and the use of leverage, thus presenting a misrepresentation of the current advisor's performance.
Egan-Jones points out that when a composite benchmark, which reflects the fund’s actual allocations, is used, the performance narrative shifts significantly, showing that the alleged underperformance of Octagon Credit Investors is not substantiated. They raise governance issues too, highlighting that while the fund’s management fee would remain static, the share of fees allocated to the proposed new adviser would see a notable increase under the new agreement.
The report also delves into the relationship between the board and the proposed adviser, suggesting that while no inappropriate motivations are explicitly indicated, the connections warrant further scrutiny from shareholders. The concerns extend to how the decision was made to propose Rockford Tower as the new sub-adviser. Specifically, claims about enhanced access to European CLO markets and an expanded platform were noted as insufficient justification for changing advisers. Egan-Jones raises questions about the selection process, indicating that the management team failed to elaborate on the range of alternative candidates considered and evaluated meaningfully.
Adding to the complexity, Egan-Jones references a tender offer from the board that is contingent upon the approval of the sub-advisory agreement, which could potentially sway shareholder votes. This linkage, according to Egan-Jones, should be taken into account by shareholders making their decision. The firm maintains that based on their thorough review, the materials provided by the board do not present compelling evidence that replacing the current adviser is in the best interest of long-term shareholder value. Therefore, Egan-Jones stands firm in recommending a vote against the proposed changes.
Egan-Jones Proxy Services, known for its independent proxy voting analysis and recommendations, aims to provide institutional investors with clarity and insight into such crucial financial decisions, ensuring that shareholder voices can be heard in the ever-complex world of finance. Given the timing of the special meeting and the vital nature of this decision, the advice from Egan-Jones is especially pertinent, as shareholders prepare to deliberate on these important changes to the trust’s management structure.
Egan-Jones points out that when a composite benchmark, which reflects the fund’s actual allocations, is used, the performance narrative shifts significantly, showing that the alleged underperformance of Octagon Credit Investors is not substantiated. They raise governance issues too, highlighting that while the fund’s management fee would remain static, the share of fees allocated to the proposed new adviser would see a notable increase under the new agreement.
The report also delves into the relationship between the board and the proposed adviser, suggesting that while no inappropriate motivations are explicitly indicated, the connections warrant further scrutiny from shareholders. The concerns extend to how the decision was made to propose Rockford Tower as the new sub-adviser. Specifically, claims about enhanced access to European CLO markets and an expanded platform were noted as insufficient justification for changing advisers. Egan-Jones raises questions about the selection process, indicating that the management team failed to elaborate on the range of alternative candidates considered and evaluated meaningfully.
Adding to the complexity, Egan-Jones references a tender offer from the board that is contingent upon the approval of the sub-advisory agreement, which could potentially sway shareholder votes. This linkage, according to Egan-Jones, should be taken into account by shareholders making their decision. The firm maintains that based on their thorough review, the materials provided by the board do not present compelling evidence that replacing the current adviser is in the best interest of long-term shareholder value. Therefore, Egan-Jones stands firm in recommending a vote against the proposed changes.
Egan-Jones Proxy Services, known for its independent proxy voting analysis and recommendations, aims to provide institutional investors with clarity and insight into such crucial financial decisions, ensuring that shareholder voices can be heard in the ever-complex world of finance. Given the timing of the special meeting and the vital nature of this decision, the advice from Egan-Jones is especially pertinent, as shareholders prepare to deliberate on these important changes to the trust’s management structure.
Topics Financial Services & Investing）
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